Automatic stabilizers can reduce the severity of a recession because, during a r

Question

Automatic stabilizers can reduce the severity of a recession because, during a recession, A. student loan subsidies rise and tax collections fall, providing more spending ability to push the economy back to full employment. B. social security payments rise and tax collections fall, providing more spending ability to push the economy back to full employment. C. social security payments and student loan subsidies rise, providing more spending ability to push the economy back to full employment. D. unemployment payments rise and tax collections fall, providing more spending ability to push the economy back to full employment.

Explanation / Answer

Correct Answer:

D. unemployment payments rise and tax collections fall, providing more spending ability to push the economy back to full employment.

Explanation:

Unemployment benefits act as an automatic stabilizer that increases during the time of recession. These benefits will increase the disposable income and new demand will be created. It will cause the economy to recover from the recession and start growing again.

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